Marketing Theory

Marketing Theory http://mtq.sagepub.com/ A new perspective on market dynamics: Market plasticity and the stability−fluidity dialectics Suvi Nenonen, Hans Kjellberg, Jaqueline Pels, Lilliemay Cheung, Sara Lindeman, Cristina Mele, Laszlo Sajtos and Kaj Storbacka Marketing Theory 2014 14: 269 originally published online 22 May 2014 DOI: 10.1177/1470593114534342 The online version of this article can be found at: http://mtq.sagepub.com/content/14/3/269

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Article

A new perspective on market dynamics: Market plasticity and the stability–fluidity dialectics

Marketing Theory 2014, Vol. 14(3) 269–289 ª The Author(s) 2014 Reprints and permission: sagepub.co.uk/journalsPermissions.nav DOI: 10.1177/1470593114534342 mtq.sagepub.com

Suvi Nenonen Hanken School of Economics, Finland and University of Auckland Business School, New Zealand

Hans Kjellberg Stockholm School of Economics, Sweden

Jaqueline Pels Universidad Torcuato Di Tella, Argentina

Lilliemay Cheung University of Queensland Business School, Australia

Sara Lindeman Hanken School of Economics, Finland

Cristina Mele Universita` degli Studi di Napoli Federico II, Italy

Laszlo Sajtos University of Auckland Business School, New Zealand

Kaj Storbacka University of Auckland Business School, New Zealand

Abstract Several researchers have pointed out that if marketing is to develop as a discipline and contribute to solving complex business and societal challenges, it should question the neoclassical view of markets and develop its own theory of markets. Efforts in this direction indicate an emerging view of markets as dynamic, subjective, and subject to multiple change efforts. However, the neoclassical view of objective, detached, and deterministic market still influences the dominant models used to describe market change. We argue that in order to better understand market dynamics, both academics and practitioners need new concepts and constructs that go beyond existing linear process and development stage models. We seek to contribute to improved understanding of

Corresponding author: Suvi Nenonen, Graduate School of Management, The University of Auckland Business School, Private Bag 92019, Auckland 1142, New Zealand. Email: [email protected]


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markets by studying a special characteristic of markets that enables market dynamics. Borrowing a term used by Alderson (1957: 277), we propose that markets are characterized by plasticity, that is, a ‘‘potentiality for being remolded and responding in a different way thereafter.’’ Even though the plasticity concept was introduced into the marketing literature nearly 60 years ago, the plastic character of markets remains underresearched. This article investigates the meaning and manifestations of market plasticity, drawing analogies from the physical, natural, and social sciences. We define market plasticity as the market’s capacity to take and retain form and propose that the dialectic between market stability and market fluidity lies at the heart of market change. Keywords Dialectics, fluidity, market dynamics, markets, plasticity, stability

Introduction In 1965, Wroe Alderson called for a theory of marketing to ‘‘explain how markets work’’ (Alderson and Martin, 1965: 123). Alderson had for some time argued that rather than simply being, as previously assumed, markets seemed to become through human effort. However, this claim received scarce acknowledgment from marketing scholars who had long given ‘‘little thought (perhaps none) to the fact that someone has to exert great effort continuously if there is to be the intricate organization required to inform potential buyers and sellers, to bring them together in the actual negotiation of a transaction, and to make it possible for them to carry out all transactions negotiated’’ (Alderson and Cox, 1948: 142). More than 60 years later, criticism is still being directed at the marketing discipline’s disconnection with markets (Araujo et al., 2008; Buzzell, 1999; Ellis et al., 2010; Vargo, 2007; Venkatesh et al., 2006). Recent years have seen a number of interrelated efforts aimed at extending the dominant economic conceptualization of markets, that is, as mechanisms for price formation, into a broader view that perceives markets as emergent social phenomena (Araujo et al., 2010; Kjellberg and Helgesson, 2007; Storbacka and Nenonen, 2011; Vargo and Lusch, 2011). We seek to contribute to this overall effort of gaining a better understanding of socially constructed markets by investigating the dynamics of markets. Particularly, we are interested in the interplay between market change, or market fluidity, and market stability. Previously, marketing has approached the dynamics of markets by developing process models explaining market change. Examples of these process-oriented models include predictive process models, such as the product life cycle (cf. Gardner, 1987; Levitt, 1965; Utterback and Abernathy, 1975), conceptualizations of the overall evolutionary process of markets, such as Lambkin and Day’s (1989) model inspired by population ecology, and descriptions of certain subprocesses influencing market dynamics, such as the sociocognitive model of product market dynamics proposed by Rosa et al. (1999). In the present research, however, we take a different approach to investigating market dynamics. Instead of providing a process description or a model for market dynamics, we study a special characteristic of markets that enables market dynamics, namely, the plasticity of markets. We propose that investigating the characteristics of markets may be an approach which is more compatible with the socially constructed and thus inherently nondeterministic nature of markets than is developing linear process models. Plasticity as a term was briefly used by Alderson (1957: 277) to denote ‘‘potentiality for being remolded and responding in a different way thereafter.’’ More recently, Kjellberg et al. (2012) have


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suggested that markets have a plastic character: they are malleable, always in the making, subject to multiple change efforts, and thus take on multiple forms. It is relatively easy to find practical examples of plasticity and multiplicity in markets involving combats between clear-cut alternatives. Consider, for instance, the competing visions of Steve Jobs (integrated hardware and software) and Bill Gates (separate hardware and software) for the future personalized computing market in the early 1980s. In other cases, these dynamics are more difficult to detect, for instance, due to the markets changing only gradually as actors continuously adjust their offerings and operations on the basis of existing solutions. Despite empirical observations that fit well with a conception of markets as plastic in character, there is little theoretical understanding of this plastic character beyond statements asserting its existence. The overall purpose of the present study is therefore to further develop a conception of market plasticity. To this end, we aim to: 1. provide a definition of market plasticity; 2. identify different manifestations of market plasticity; and 3. introduce a theoretical classification for sorting these manifestations and a managerial framework for categorizing markets based on their expected plasticity. We approach the topic through iterative conceptual development (Denzin and Lincoln, 2013), drawing on literature from physics, engineering, biology, neurosciences, systems theory, philosophy, sociology, economics, organizational theory, strategy, and marketing. Our research process involves four main steps: 1. Identifying subject areas addressing plasticity and investigating how they define the concept in order to come up with our own definition. 2. Reviewing subject areas with relevance to economic organizing and markets to flesh-out our definition by identifying different areas in which market plasticity might manifest itself. 3. Theorizing about the interplay of the two facets of the market plasticity concept in the light of such manifestations. 4. Developing a managerial framework to guide engagements with markets with different degrees of plasticity.

Defining markets and market plasticity Inspired by recent contributions to marketing and economic sociology (e.g. Araujo and Spring, 2006; Callon and Muniesa, 2005; Chandler and Vargo, 2011; Kjellberg and Helgesson, 2007; Penãloza and Venkatesh, 2006), we define markets as ongoing socio-material enactments that organize economized exchanges. A few clarifications are in place regarding this definition. First, markets are ongoing enactments in the sense that they are both created and maintained through sets of interconnecting practices. Second, they are socio-material in the sense that the practices that create and maintain them comprise interactions between materially heterogeneous entities. Third, they organize economized exchanges in the sense that a market can only be recognized as such if economized exchanges (plural) take place. This third characteristic does not mean that all exchanges taking place in markets have to be economized; indeed, noneconomic exchange is likely to be important in many, if not most markets (see e.g. Granovetter, 1985; Spillman 1999). We emphasize that because our proposed definition places few limits on markets


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apart from the above, it acknowledges the wide variety of ‘‘really existing markets’’ (Boyer, 1997) as well as the blurred boundaries between markets and other forms of economic coordination. Our thesis is that markets, defined in the above way, are characterized by varying degrees of plasticity, defined as the capacity to take and retain form. This definition means that markets can be molded, to varying degrees, in terms of their shapes and functions, and that they are able, to varying degrees, to retain such changes in their various properties even after the molding effort ceases. Plasticity is thus a dual construct; it requires both fluidity, defined as the capacity to take form, and stability, defined as the capacity to retain form. In principle, we maintain that all markets are plastic—even though their degree of plasticity can change, and that the interplay between fluidity and stability helps us understand market dynamics in more detail. We propose that the term market plasticity encapsulates the dynamic and socially constructed nature of markets better than other available terms. Expressions such as ‘‘dynamics,’’ ‘‘development,’’ and ‘‘evolution’’ lean more toward the process of market change than does the characteristic of markets that allows market dynamics. Other constructs such as ‘‘change’’ and ‘‘fluidity’’ neglect what is arguably a critical facet of market dynamics, namely its dual character of both fluidity and stability (cf. Gadde and Mattsson, 1987). The concept of ‘‘malleability’’ comes closest to plasticity. Even though malleability has occasionally been used in the context of markets (Kjellberg et al., 2012), we advocate the use of plasticity for two reasons. First, the everyday use and etymology of malleability refers to malleable metals and shaping through hammering. Second, in physics, malleability is seen as a subtype of plasticity, denoting the ability of a material to deform under compressive stress (Rich, 1988). Thus, plasticity is a more suitable metaphor to represent markets’ dual ability to take and to retain form.1 There are two important consequences of the plastic character of markets as defined above. First, the ability to retain form allows markets to give form to other entities by, for example, affecting the shape of a particular exchange object, the mode of a specific economic exchange or the characteristics of an exchange agent. Markets are thus performative, in the broad sense of the term (Law and Urry, 2004). Second, the ability to take form allows markets to host multiple forms simultaneously. As actors enact ‘‘their’’ market, markets tend to multiply into overlapping versions (Kjellberg and Helgesson, 2006).

Existing definitions When consulting other disciplinary literature for the various meanings and uses of the term ‘‘plasticity,’’ we identified both similarities and differences in relation to our proposed definition. In the natural sciences, plasticity is a construct that is used to describe suppleness and deformation in various contexts. For example, in physics plasticity is defined as the deformation of a material undergoing nonreversible changes in shape in response to applied forces (Bigoni, 2012; Lubliner, 2008). In biology, the term plasticity is most often used to discuss ‘‘phenotypic plasticity,’’ that is, the ability of organisms to alter their phenotypes (observable characteristics) in response to changes in the environment (West-Eberhard, 1989), and ‘‘neuroplasticity,’’ the capability of the cerebral cortex to alter its physical structure and functional organization (Pascual-Leone et al., 2005). Systems theory differentiates between structural and organizational plasticity. Structural plasticity refers to a social system’s ability to drift toward greater congruence through recurring perturbations. Organizational plasticity refers to the system’s ability to neutralize external structural changes by making internal structural changes (Forrester, 1961; Maturana, 1978; Sterman, 2000). In philosophy, Malabou (2008, 2010) discusses the concept of plasticity with reference


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to a three-fold definition: (a) the capacity to receive form; (b) the capacity to give form; and (c) the powerful rupture or annihilation of all forms (possibly inspired by the notion of plastic explosives). In the social sciences, the plasticity construct is used less often and as a more peripheral concept than in the natural sciences. For example, in sociology, the term plasticity is loosely referred to as variability (Turner et al., 1995) and, hence, the difficulty of describing, defining, or demarcating the boundaries of something (Donaldson, 1987). Two explicit uses of the term plasticity can be detected in economics. First, Alchian and Woodward (1988: 69) use asset plasticity ‘‘to indicate that there is a wide range of discretionary, legitimate decisions within which the user may choose.’’ This characteristic is said to explain which resources are vulnerable to morally hazardous exploitation, hence giving agents opportunities to bias their actions toward their own interests. Second, Strambach (2010) discusses the notion of institutional plasticity, emphasizing that institutions are both enabling and restraining. Their plastic character is linked to interpretative flexibility, which in turn depends on the sanctions (e.g. social and legal) associated with a particular institution. Because actors take action in situations where firm, industry, regional, national, and international institutions overlap, there are opportunities for new combinations of earlier institutional components. Finally, complementarity between institutions is identified as having an ambiguous role, with contributing to both stability (via lock in) and fluidity (through accumulation of incremental changes). In marketing, Alderson (1957: 277) used the term plasticity to signify the potentiality for remolding and subsequently responding differently. However, the concept is not very central to Aldersonian’s thought or to the thinking of other marketing scholars. Similarly, the plasticity concept does not belong to the core lexicon used by organization theorists or strategy researchers. During our review of literature, we identified five main facets of plasticity: the abilities to take form, retain form, give form, annihilate form, and change function. As evident in Table 1, where we use these facets to compare our proposed definition of plasticity (market plasticity) with the definitions of other identified meanings and uses of the term, most of the existing plasticity constructs emphasize the duality of taking and retaining form. Malabou’s (2008, 2010) definition of plasticity is the most extensive, because it also acknowledges the performative and destructive forces of plasticity. Additionally, the plasticity definitions rooted in the natural sciences differentiate between the plasticity of form and the plasticity of function. However, differentiating structural and functional plasticity becomes increasingly challenging when investigating social phenomena. Therefore, we define market plasticity as a market’s ability to take and retain form, while acknowledging that, by retaining form, markets can also give form, and that ‘‘form’’ in a market context is not limited to structure alone but involves both structural and ‘‘functional’’ aspects (as acknowledged also by e.g. Jaworski et al., 2000).

Manifestations of market plasticity To enrich our understanding of market plasticity as defined above, we revisited five literatures likely to offer us specific insights into market dynamics that we could relate to the concept of plasticity: economics, sociology, organizational theory, strategy, and marketing. Based on this literature review, we argue that the dual character of market plasticity, that is, the interplay between fluidity and stability, can operate on multiple levels. As proposed in our definition, markets do seem to be able to both take and retain form as aggregated markets. Such observations depend on techniques for aggregating (as in industrial organization theory) or connecting (as in the various network approaches) a set of components (actors and exchange objects) into a (market) structure, whose boundaries and internal constitution may change. However, the interplay between stability and fluidity can also


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Table 1. Comparison of various definitions of plasticity. Type of plasticity

Theoretical domain Definition

Material plasticity

Physics

Phenotypic plasticity

Biology

Neuroplasticity Biology

Structural plasticity

Systems theory

Organizational plasticity

Systems theory

Malabou’s plasticity

Philosophy

Asset plasticity Economics

Institutional plasticity Market plasticity

Economics Marketing

Deformation of a material undergoing nonreversible changes in shape in response to applied forces Ability of organisms to alter their phenotypes (observable characteristics) in response to changes in the environment Capability of the cerebral cortex to alter its physical structure and functional organization Social system’s ability to drift toward greater congruence through recurring perturbations System’s ability to neutralize external structural changes by making internal structural changes Capacity to receive form, to give form, and the powerful rupture or annihilation of all forms Range of legitimate courses of action available that users of the resource can choose from The degree of interpretative flexibility of institutions The capacity of markets to take and retain form

Take Retain Give Annihilate Change form form form form function x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

be observed on a more disaggregated level: different facets of markets such as market actors, institutional arrangements, and market practices may also take and retain form. In order to support future research into the multifaceted character of market plasticity, we suggest a classification scheme2 that deconstructs market plasticity and is informed by this question, what provides plasticity in markets? Our proposed classification examines different manifestations of market plasticity through five different but interrelated aspects of markets derived from the literature review: exchange object, market actors, market institutions, market practices, and market structure. Table 2 provides an overview of the proposed classification. We do not claim that these manifestations compose a comprehensive or cohesive framework for


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Table 2. Classification of the manifestations of market plasticity. Plasticity in

Take form

Exchange objects

Introduction of a new or modified exchange object Customers purchasing exchange objects in different configurations (e.g. productservice bundles) or by using different evaluation criteria (e.g. from the lowest price to the most economical lifetime cost) Market Learning by both (1) individual market actors actors and (2) several market actors as a group New resources available that allow market actors to perform new acts or to perform old acts differently New ideas (or mental models) and resource configurations (or business models), often driven by entrepreneurial initiatives and motives Market Emergence or introduction of new or institutions modified market institutions such as product standards, legislation or orders of worth

Market practices

Market structure

Retain form Commonly accepted object of exchange that is evaluated using institutionalized evaluation criteria and is exchanged over established interfaces

Shared ideas and mental models turn into dominating logics and industry recipes Resources with lock-in (e.g. long-term contracts), organizational routines Successful resource configurations and business models have a high degree of configurational fit that creates inertia

Diffusion of market institutions to affect increasingly large numbers of market actors Various market institutions reinforcing one another and being materialized into, for example, exchange infrastructure Solidification of institutions through monitoring and enforcement systems Change in the routinized actions and/or the Exchange, normalizing and representational practices are well aligned, and activities related artifacts in exchange, normalizing, within the market can continue and representational practices (often uninterrupted initiated by the misfit between the market practices) Change in the number of actors participating Barriers of market entry (e.g. regulation) or exit (e.g. sunk costs); in the market or in the roles of the market Long-term collaboration between market actors and the relationships between them actors becomes routinized and is often Emergence of an alternative conception of the supported by integrated infrastructure (e.g. market, resulting in novel market integrated ICT systems) boundaries and structures

ICT: Information and communications technology.

conceptualizing markets. Indeed, as we will see, several of the identified manifestations of plasticity are likely to overlap and/or trigger one another in empirical markets. In the following sections, we discuss the different manifestations of market plasticity in the light of the extant literature. As Geiger et al. (2012) acknowledge, different literature streams place different emphases on the various aspects of markets: industrial organization theorists emphasize market structure, institutional approaches focus on market institutions, and performativity researchers stress market practices and material devices. Although these varying focuses were also evident during our literature review, we report, in the interest of readability, only the main literature findings relevant to each manifestation.


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Exchange objects Austrian economics identifies offers (their prices and qualities) as a potential area for market plasticity. The main engines of this are the alertness to possible opportunities, which is assumed to be characteristic of human beings (Kirzner, 1997), and the competitive process. Entrepreneurs make bold conjectures and take action, resulting in the variety of offers (they take form) (von Mises, 1966). These actions provide signals to others who adjust their plans and actions (offers), for instance, by copying the innovator (von Hayek, 1945). This process brings equilibration or stabilization to markets because of their tendency to coalesce on a particular form of offer. However, this propensity will be offset by subsequent entrepreneurial actions. In sociology, the actor–network theory (see Callon, 2007; Callon et al., 2002; Latour 1987, 2007) emphasizes the qualification of goods as a potential source of market plasticity. Drawing on these ideas, some marketing scholars approach the plasticity of markets through market and marketing objects. Finch and Geiger (2010) propose that marketers position goods and services as disentangled market objects and thus provide both the criteria and means by which other market actors can evaluate differences and similarities across various alternatives (calculation). At the same time, marketers attempt to re-entangle these market objects in the material and cultural worlds beyond the market setting and thereby reformat them into marketing objects. These processes lead to multiple frames of calculation and thus ultimately to multiple and continuously evolving markets. Market objects also provide a vehicle for market actors to deliberately influence the markets’ form taking and form retaining. Market actors can heat up or destabilize existing market objects by changing their material bases through, for example, product development (Finch and Geiger, 2011) or reconceptualizing their function (e.g. from phone to mobile multipurpose devices). Similarly, market actors can induce stability by cooling down or stabilizing previously contested market objects.

Market actors Several literature streams discuss how market actors’ cognition contributes to market plasticity. First, taking and retaining form can be observed in the mental models of actors and in the learning processes taking place on individual, organizational, and interorganizational levels. The learning literature suggests that higher level learning can lead to change that goes beyond mere adaptation and so is transformative (Cope, 2003) and that such learning can also occur on a network level (Crossan et al., 1995; Knight and Pye, 2005). This type of learning is often triggered by exogenous learning events, critical incidents or even crises (Argyris and Scho¨n, 1978; Cope, 2003; Fiol and Lyles, 1985; Knight and Pye, 2005). Making a direct link between mental models and market changes, actor–network theory researchers propose that theoretical ideas about markets contribute to their shaping (Callon, 2007; Latour 1987). However, mental models also express considerable stability. Various authors have researched how mental models become ‘‘dominant logics’’ (Prahalad, 2004; Prahalad and Bettis, 1986) or ‘‘industry recipes’’ (Spender, 1989) that cause ‘‘active inertia’’ (Sull, 1999) for firms and markets alike. The socio-cognitive approach to markets (Rosa et al., 1999) complements this view by emphasizing the stabilizing role of shared cognitive structures among market participants. Second, taking form is discussed from the viewpoint of deliberate strategies, motives, and initiatives. The debate on ‘‘market-driving strategies’’ brings attention to deliberate efforts to change the configurations of actors and/or their behavior in the market (Jaworski et al., 2000; Narver et al., 2004; Varadarajan, 2010). Similarly, work on the effectual logic suggests that entrepreneurial initiatives determine what a new market will look like. However, the success of these


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initiatives depends on how well they mobilize followers (Sarasvathy and Dew, 2005). Also, the literature on social movements (King and Pearce, 2010) proposes that the disruptive motives (often associated with charismatic leadership) destabilize dominant market forms, ideologies, and/or practices. From evolutionary economics, we derive the related idea of organizational routines as genes (Nelson and Winter, 1982). New routines can be created or old ones modified as a result of actors learning new things, as discussed above. The ability of markets to retain form follows the familiar evolutionary logic of selection, which maintains that only those organizations employing the most beneficial routines will enjoy market success. In addition, actors are assumed to have a tendency to retain their routines, due both to an irrational resistance to change and to the costs associated with adopting new routines. The role of resources is also a recurring theme related to market plasticity. Population ecology focuses on the relationship between an organization’s resource dependencies and their fit with the organization’s environment. Organizations unable to adapt to their environment will likely perish (Hannan and Freeman, 1987). Thus, taking and retaining form is a consequence of organizations competing for resources, a process that separates winners from losers (Friedman, 1957). The performativity approach in sociology (Callon, 2007; MacKenzie, 2005) also emphasizes the role of resources in market fluidity by proposing that markets take form as equipped actors solve problems using tools that define, interpret, and organize interactions. With regard to retaining form (stability), the literature on business models suggests that successful business models stabilize firms’ resource and capability configurations through virtuous circles, lock-in effects, and organizational policies (Casadesus-Masanell and Ricart, 2011; Chesbrough, 2010).

Market institutions Institutional economics suggests institutions, defined as ‘‘humanly devised constraints’’ (North, 1991), act as a vehicle for market plasticity. Institutions are stabilized (retain form) by both the benefits they offer to transacting parties and the elaborate systems for monitoring and policing that uphold them and make them inert. That said, institutions evolve over time as a result of interactions among individual actors, which are fueled most importantly by the growing specialization and division of labor, resulting in the need for coordinating additional transactions (Loasby, 2000). The current institutional order can also provide incentives for market actors to engage in institutional development because actors assumedly strive to reduce transaction costs. Similarly, the organization theory literature argues that environments and markets are capable of becoming institutionalized (Scott, 1987; Zucker, 1987). Therefore, firms can ensure their survival by maintaining congruence with shifting industry norms and shared logics (Lewin and Volberda, 1999; Meyer and Rowan, 1977). In sociology, the institutional view of markets (DiMaggio and Powell, 1983; Dobbin, 1994; Fligstein, 1996) also emphasizes the role of market rules, power and norms in influencing cognition and the actions of market actors. Fligstein (1996) assumes that actors seek to promote market stability in order to ensure their own survival. Such market stabilization can be achieved through the application of power and authority or the emergence of institutional logics. Change in a market can be induced, however, by instituting new or altering existing conventions. With regard to multiplicity, some scholars argue that the market is a set of culturally constituted institutional arrangements that allow for diverse interpretations of the market boundaries and whose legitimacy lies in the value created for the producer, the consumer, and the various intermediaries (Venkatesh et al., 2006).


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Market practices In sociology, the performativity school views economic action as a result of calculative processes and emphasizes the role of technology, nonhuman objects, and artifacts (Callon, 2007; MacKenzie, 2005). In particular, markets retain form because of the continual repetition of practices. Such repetition can be encouraged by solidifying situations through material investments that make the performance of certain practices more likely and/or easier. This approach is heavily influenced by actor–network theory (Callon 2007; Callon et al., 2002; Latour 1987, 2007), which proposes that taking form can take place through interaction between human and nonhuman actors, whereby an actor’s idea is spread such that its influence grows in the network, a process that can then invoke growth of the network itself. One example of how markets can retain form is through professionals’ constant efforts to qualify products and profile customers, which concurrently means that consumers are constantly prompted to voice their preferences and, ultimately, build their social identity through consumption. In marketing, research on market practices suggests that markets are continuously performed by a wide range of actors engaging in interlinked exchange, normalizing, and representational practices (Kjellberg and Helgesson, 2007). Here, the translations between such practices (how they interlink) constitute an important source of novel forms, since the product of one practice typically changes as it is picked up and used in another practice (Latour, 1987). At the same time, the existence of carefully aligned sets of practices that allow market activity to continue uninterrupted contributes to the market’s ability to retain form.

Market structure The industrial organization paradigm (Scherer and Ross, 1990) suggests that empirical markets vary in terms of their structure (Bain, 1959), that is, the extent to which output/sale is concentrated among a limited number of sellers. The structure of a given market may change (take form) as a result of the strategic actions and rivalry between and across firms that alter market shares; through entry into or exit from the market; and via changes in the degree of product substitutability (which redraws the market boundaries, including or excluding products and/or firms). The market structure is stabilized (retains form) by the technological, economic, and policy conditions that apply, such as barriers to entry or exit, economies of scale, and specific regulations. This process provides markets with a certain amount of resilience, because firms which seek to alter market structure in a way that ignores the existence of, for example, scale economies will face, relative to other firms, disadvantages (e.g. higher costs). The market conduct of incumbent firms can also act to conserve a particular market structure by, for example, pricing their offers so as to keep new firms from entering the market. The strategy literature also discusses change and stability in terms of the structure of the industry, cluster, or market. Most often, strategy researchers use the notion of product lifecycles to explain industry evolution (Abernathy and Utterback, 1978), that is, how industries evolve from the birth of a new product to maturity in terms of the number of actors, competition intensity and focus and market growth (cf. Abernathy and Utterback, 1978; Menzel and Fornahl, 2010). Building on industrial organization theory, Porter (1980, 1985) discusses market change in a similar manner, using concepts such as new entrants and product substitution. The strategies built on these notions focus on stabilizing the field—of finding defendable positions in the market and then building barriers to entry or setting in place some other defense strategy. Some researchers argue, however, that individual firms can induce systemic change by creating uncontested market


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spaces through value innovations (Kim and Mauborgne, 2004) or by utilizing reconstructionist strategies that are aimed at shaping the environment (Kim and Mauborgne, 2009). Sociological network approaches to markets (Baker, 1984; Burt, 1992; Granovetter, 1985, 2005; White, 1981) build on the notion that economic action is not carried out by individual actors but is always embedded in networks. Taking form occurs through capitalizing on opportunities, whereas retaining form follows stability-inducing mechanisms that generate trust between market actors. Similarly, research on relationship marketing and business networks suggests that actor bonds, activity links, and resource ties between market actors constitute stabilizing forces in markets (Ha˚kansson and Johanson, 1992; Ha˚kansson and Snehota, 1995). Finally, the configuration approach elaborates the networked nature of markets. According to this view, networks should not be viewed as entities built out of loosely coupled elements but as configurations—tightly coupled wholes (Demers, 2007). Several researchers (e.g. Siggelkow, 2002; Venkatraman, 1989) have shown positive correlations between performance and such factors as internal consistency, fit, congruence, and alignment across elements. The notion of networks as configurations has two specific implications. First, it implies that configurations have in-built inertia because they strive to achieve certain ideal types (Miller, 1981). The second is that because configurations are equifinal in nature, there is no one ‘‘best’’ market configuration. Several configurations may be equally effective (Doty et al., 1993). However, the elements in each must reinforce one another in a way that realizes a high degree of configurational fit (Siggelkow, 2002).

Commonalities in taking and retaining form The dialectical tension between the fluidity of taking form and the stability of retaining form indicates some commonalities in the two processes. Investigation of how the different facets of markets take form suggests that this process requires some level of dissonance (cf. Stark, 2009): as novel or altered elements are introduced into the market system, markets change, triggering a wider transformation. The idea that taking form occurs through dissonance attracts wide acknowledgment in evolutionary approaches and systems theories, which tend to emphasize the fit between the individual components of a system and its aggregated form. The process of taking form can also be categorized into two subprocesses—intentional and emergent: sometimes markets change as a result of actors’ intentional efforts; at other times, markets transform gradually without any discernible, intentional, market-shaping effort. Distinguishing between intentional and emergent processes of taking form resonates with Mintzberg and Waters’ (1985) explication of the notions of deliberate and emergent strategies. Similarly, Aspers (2009) differentiates between spontaneous, state-governed and self-governed market-making in his study of markets in the making. The capacity to retain form in markets is often explained in the literature in terms of increasing formalization, institutionalization, routinization, and materialization. The various theories reviewed above provide support for different form-retaining ‘‘mechanisms.’’ The natural sciences (e.g. physics) as well as some social science traditions (e.g. industrial organization theory and the performativity program) place considerable emphasis on materialization. Of the various institutional theories reviewed, some emphasize learning and routinization (sometimes explicitly linking this to economization), whereas others highlight institutionalization and formalization (as in monitoring and policing particular institutions).


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As suggested in Table 2, markets can potentially take and retain form via each of the five manifestations, which hence can display internal dialectics. For example, in regard to exchange objects, some innovative providers might advocate leasing of material goods such as work clothes or construction equipment while the majority of the providers prefer to offer them through traditional change-of-ownership transactions. It is equally common to observe dialectics that take place between the taking of form in one dimension and the retaining of forms in others. As an example of such inter-aspect dialectics, consider a situation in which customers learn to take into account environmental consequences when evaluating a particular good, say clothes, even though the providers’ business models, industry standards, and media coverage do not have environmental qualities as a main design parameter. The former denotes a change in the mental models of the market actors (in this case, the customers), while the latter indicates a desire on the part of market actors (the providers) to keep resource configurations, market institutions, and representational practices stable. The reviewed literature suggests several ways in which these inter-aspect dialectics can be resolved. They include, for example, processes associated with selection (as posited by evolutionary approaches), competition (as posited by many economic approaches), and politics (as posited by institutional and sociological theories). The fact that some researchers have already discussed the type of market dynamics that occurs through dialectical relationships in particular empirical contexts, such as financial markets (Vashishtha and Sharma, 2012), the defense industry (Depeyre and Dumez, 2009), and new media (Mansell, 1999), suggests that the principles of Fichte (1798/99) and Hegelian (1807) dialectics could contribute in important ways to the study of market dynamics. For example, these principles propose that the dialectical interplay between market stability and fluidity does not lead to circular change or pendulum movements but to spiral-like development, where the opposing forces eventually lead the entire market to take on another form (which of course may comprise changes to its plastic character as well). Similarly, the principles of dialectics suggest that radical market change is likely to occur through discrete turning points or crises—a view that is widely shared by scholars researching organizational and inter-organizational learning (cf. Araujo, 1998; Argyris and Scho¨n, 1978; Cope, 2003; Fiol and Lyles, 1985) and is also evident in systems theory.

Managerial classification of plastic markets From a managerial perspective, we suggest that the most relevant classification scheme is one that does not focus on categorizing different historical manifestations of market plasticity. Because practitioners require forward-looking and more normative framing devices that enable them to decide how to engage with different markets, we propose a separate managerial classification that categorizes markets according to their expected plasticity (see Figure 1). The proposed framework adds to the categorization developed by Jaworski et al. (2000), which suggests classifying markets in terms of their ability to shape their structure and/or behavior. This classification matrix makes it possible to separately examine the two constituents of the dual construct of market plasticity, that is, a market’s capacity to take and to retain form. This action results in four categories of markets that vary in terms of their expected plasticity. Even though the proposed managerial classification (Figure 1) takes a deliberately different view of market plasticity from that evident in the above-discussed theoretical classification (Table 2), these two classification devices are related. In providing a granular view of the historical manifestations of market plasticity, the theoretical classification device helps us assess markets’ future plasticity and thus position different markets within the different quadrants of the managerial classification device.


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High

Stable

Alternating

Ephemeral

Volatile

Capacity to retain form Low

Low

High Capacity to take form

Figure 1. Managerial classification of markets based on their expected plasticity.

Markets classified as ‘‘stable’’ are likely to resist most of the emergent and intentional attempts to change them, because they have a much greater capacity to retain their current form than to take on a new one. Such markets are likely to be characterized by stable structures, institutions and practices, widely shared dominating logics, high levels of inertia, and a relatively slow pace of change. Examples of such markets are the Nordic pulp and paper cluster or the global pharmaceutical industry. If an actor wishes to engage with such a market in order to shape it, the actor in question will have to ensure sufficient market-shaping power to push the sluggish market onto a change path. Market-shaping power can be improved by, for example, partnering with other actors with a similar agenda or by piggybacking external events that favor the actor’s market-shaping efforts. ‘‘Ephemeral’’ markets take us close to the limits of economized markets because a complete inability to take or retain form means there is no recognizable phenomenon that can be labeled ‘‘a market.’’ However, many entrepreneurial ventures, for example, operate in circumstances that we could categorize as markets with low capacity to both retain and take form. Such markets emerge in the face of need and/or opportunity, as occurs in instances of unmet customer need or when an entrepreneur can turn his or her knowledge and resources into a revenue-generating venture. The various emerging markets associated with 3D printing technology could currently be classified as ephemeral. Due to the low capacity to retain form, such markets are not necessarily long lasting— some may exist for no more than a couple of transactions. Given the transient nature of these markets, actors wishing to engage with them need to possess a thorough understanding of the other related socio-material enactments (e.g. relationships among actors and material infrastructure), as these may be more long standing than the markets themselves. Markets categorized as ‘‘alternating’’ (i.e. those which have a high capacity to both take and retain form) are often characterized by rapidly changing phases of stability and change. At first, the market expresses its high capacity to retain form through its stable structures and shared ideas— only to transform next into a state of flux. Such sequential development can be observed, for example, in many consumer electronics markets that are driven by both fast technological


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development and the need for dominant standards (cf. Stango, 2004). For instance, home recording of television broadcasts has witnessed several battles for dominant standards since the mid-1970s, with VHS versus Betamax and Blu-Ray versus HD DVD being the most legendary ones. Successfully engaging with such markets requires strategic and operational ambidexterity. Actors therefore need to be capable of exploiting the phases of stability as well as influencing market development during the phases of fluidity. Finally, ‘‘volatile’’ markets are likely to be in a constant state of change because new forms are not retained for long. Examples of these highly dynamic markets can be found especially in virtual domains, such as mobile application development, e-commerce and the labor market for freelance knowledge workers. The fluidity of these markets can be partially explained by the limited material infrastructure and the ability to transport the object of exchange electronically with very little cost. Engaging with such markets requires good market-sensing capabilities (Storbacka and Nenonen, 2012) and an agile business model; actors have to be able to read the market development and to adjust their operations accordingly. Additionally, larger actors with sufficient market-shaping power are often those most inclined to attempt to stabilize the market by increasing its capacity to retain form and thereby benefit from the likely resulting economies of scale (Loasby, 2000). Classifying markets on the basis of their expected plasticity reveals the temporal and subjective aspects of market plasticity. Interestingly, the capacity to take and retain form does not have to manifest itself on both dimensions simultaneously and to a similar degree. On the contrary, it seems that the dialectical interplay between fluidity and stability differs at different points in time. Consequently, the same markets may reside in different parts of the classification matrix depending on when they are assessed. Also, different actors may assess the same market differently, categorizing it to different quadrants based on their subjective views of that market and its expected plasticity. As Sarasvathy (2008) points out, fluidity springs from the ability to see ‘‘a universe of possible realities.’’ Therefore, the evolutionary paths of different markets seem to be largely nondeterministic. Thus, it is not possible to say that all markets gravitate towards a certain category or that markets change from alternating to stable. The proposed managerial classification of markets based on their expected plasticity provides assistance to practitioners in three ways. First, by illuminating the object of a market-driving strategy (Jaworski et al., 2000; Varadarajan, 2010), the classification matrix makes clear the differences and similarities across different markets in terms of their plasticity. This increased understanding should help managers find more suitable benchmarking opportunities when seeking external advice on, for example, best practices in market shaping—after all, the applicability of benchmarking information depends largely on the similarity of the contexts. Second, the characteristics of the different ‘‘archetypes’’ are in themselves likely to suggest viable ways of engaging with different types of markets. Third, the nondeterministic nature of evolutionary paths invites practitioners to approach markets as spaces of opportunities and to analyze the actions (toward either retaining or taking form) that best suit their strategies.

Conclusions The present study contributes to the emerging effort to understand socially constructed markets (Araujo et al., 2010; Kjellberg and Helgesson, 2007; Storbacka and Nenonen, 2011; Vargo and Lusch, 2011) in three ways: by providing a definition for the construct of ‘‘market plasticity,’’ by enriching the terminology related to markets, and by extending the understanding of market dynamics.


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Drawing on the literature from the physical, natural, and social sciences, we defined market plasticity as ‘‘the capacity of markets to take and retain form.’’ Even though the literature review revealed that plasticity as a term is not widely used in social sciences, the fluid and stable characteristics of markets are discussed from various viewpoints in systems theory, sociology, economics, organizational theory, and strategy, as well as in marketing. We propose that the market plasticity construct, illuminating a special characteristic of markets, provides a perspective on market dynamics complementary to the existing process-based models such as product life cycle (cf. Gardner, 1987; Levitt, 1965; Utterback and Abernathy, 1975) and development stage models (e.g. Aspers, 2009; Lambkin and Day, 1989). Additionally, the terms plasticity, fluidity, and stability enhance our lexicon regarding market dynamics, enabling more nuances than the commonly used terms such as ‘‘maturity’’ (limited by its association with market growth rate) and ‘‘readiness’’ (imprecise in the context of socially constructed, continuously transforming markets). While this new language is beneficial to academics, it is especially important to the practitioners whose thinking and, ultimately, actions are unnecessarily limited by the currently prevailing terminology about markets originating from neoclassical economics. Finally, the examination of the different manifestations of market plasticity and the related dialectics add to the understanding of market dynamics. Our analysis suggests that the dialectic of stability and fluidity in plastic markets produces spiral-like change processes, triggered by discrete turning points of crises, where the opposing forces eventually lead the entire market onto another level. This conceptualization of market dynamics offers a perspective different from that of the prevalent, often deterministic, models which portray market change either as predictable and gradual (such as product life cycle) or as quantum leaps (such as disruptive innovations, cf. Christensen, 1997).

Further research To our knowledge, the present study is the first to focus on defining and delineating the market plasticity construct. This exploratory and conceptual investigation therefore opens up various avenues for further research. First, the market plasticity construct should be subjected to empirical investigation in order to stress both the conceptual development and the metaphor. In particular, both of the proposed classification devices should be populated with empirical data, since such an investigation is likely to increase our understanding of market dynamics. Additionally, it would be beneficial to investigate longitudinally how the dialectic dynamics unfold in markets. The present research merely identifies the temporal aspect of market plasticity as relevant but provides little conclusive evidence on the subject. From the managerial point of view, the proposed classification of markets based on their expected plasticity could be developed into normative guidelines or ‘‘simple rules’’ for contextually sensitive market-shaping strategies. Finally, the limits of market plasticity should be investigated further by addressing such questions as the conditions under which markets cease to foster resource integration. Notes 1. The word ‘‘plastic’’ (adj.) was adopted into English in the early 17th century from the Latin word plasticus and Greek plastikos, both of which denote ‘‘able to be molded, pertaining to molding, fit for molding.’’ The original meaning of plastic was ‘‘capable of shaping or molding.’’ ‘‘Plastic surgery,’’ in the surgical sense of ‘‘remedying a deficiency of structure,’’ was first recorded early in the 19th century and ‘‘plastic


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explosive’’ was first used in the late 19th century. ‘‘Made of plastic,’’ relating to the synthetic or semisynthetic moldable organic solid materials, originates from the early 20th century (www.etymonline.com). 2. As McKelvey (1975) points out, classification studies display significant semantic confusion. The relatively liberal use of terms such as taxonomy, typology, and classification scheme means that the same label can be used to refer to fundamentally different classification devices. In the present research, we build on the definitions by Doty and Glick (1994) that differentiate between typologies and taxonomies. Typology is a set of ideal types that is able to predict the dependent variable whereas taxonomies and classification schemes categorize the phenomena into mutually exclusive and exhaustive sets with discrete decision rules. Furthermore, Meyer et al. (1993) suggest that the term taxonomy is often reserved for empirical classifications based on multivariate analysis of multiple dimensions. Therefore, in this research, we put forward a classification scheme for market plasticity that does not present ideal types or mutually exclusive categories but increases the granularity of our understanding of market plasticity.

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Lilliemay Cheung is a PhD student in the UQ Business School, The University of Queensland, Brisbane, Australia. Her research and teaching experience include services marketing, social marketing, and applied health care research. She has published in The Marketing Review and Higher Education, Research and Development. Address: UQ Business School, The University of Queensland, Brisbane QLD 4072, Australia. [email: [email protected]] Sara Lindeman is a PhD student at the Hanken School of Economics, Finland. Her doctoral research focuses on market practices in subsistence contexts. Her publications have appeared in Journal of Management Studies and Consumption Markets & Culture. Address: Hanken School of Economics, Department of Marketing, P.O. Box 479, 00101 Helsinki, Finland. [email: [email protected]] Cristina Mele is an associate professor of management at the University of Napoli ‘‘Federico II.’’ Her research and teaching experience is in the areas of management, marketing, innovation, and quality. Her articles have appeared in leading international journals, including Industrial Marketing Management, Journal of Service Management, and Managing Service Quality. She has served as the co-editor of special issues of Journal of Service Management, Service Science, and Journal of Business Market Management. Address: Universita` degli Studi di Napoli Federico II, Via Cinthia Monte S. Angelo, Napoli, Italy. [email: [email protected]] Laszlo Sajtos is a senior lecturer in the Department of Marketing at the University of Auckland Business School. His research interests are at the crossroads of service recovery and relationship management. His research changes the ways in which companies utilize their customer–brand relationships to overcome negative brand-related incidents. His publications have appeared in leading international journals including Journal of Service Research, Journal of Advertising Research, Industrial Marketing Management, Australasian Journal of Marketing, and Acta Oeconomica. Address: The University of Auckland Business School, Department of Marketing, Private Bag 92019, Auckland 1142, New Zealand. [email: [email protected]] Kaj Storbacka is a professor at the Graduate School of Management, University of Auckland Business School. His main research interests include market and business model innovation, market shaping strategies and solution business transformation. His research has been published in journals such as Journal of the Academy of Marketing Science, Industrial Marketing Management, Journal of Business Research, and European Journal of Marketing. Address: Graduate School of Management, The University of Auckland Business School, Private Bag 92019, Auckland 1142, New Zealand. [email: [email protected]]
